Date: 08/03/2000 2:45 PM
Subject: Comment on File No. S7-13-00 Auditor Independence Requiremen
I have two comments regarding the proposed rules governing independent
auditors, the second item of which is a follow-up to my telephone
conversation with John Capone.
The first involves the potential prohibition regarding tax filings and
related tax work. We link the auditing of our annual financial
statements with the filing of our tax returns. Since our shareholders
benefit when the independent auditor audits both out annual financial
reports and our tax filings, and since it would cost more money (and
thus hurt our shareholders) to have two separate independent auditors
(one for tax, one for financial statements), the proposed rules needs to
clearly permit a single independent auditor to audit both the annual
financial statements and prepare the tax filings.
The second point of concern involves a potential conflict of interest
apparently not addressed in the proposed rule. Specifically, it would
involve the hypothetical case where the independent auditor competes with
the audit client. (The rules speak only of the situation where the
indepedent auditor is compensating for selling or referring business to
the audit client). Here, I am thinking of the growing number of CPA firms
which (depending on which state they do business in) offer investment
management services and who also act as independent auditors for
registered investment companies. In this case, a potential conflict
exists where, in being compensated for offering competing services, the
independent auditor can potential accrue a financial gain by issuing an
unfavorable "independent" auditors report regarding the competing mutual
fund it audits.
I believe this second issue will become increasingly relavant among
mutual fund independent auditors as more states allow CPA firms to
recieve investment management fees. The SEC should specifically address
in the proposed rules.
- Chris Carosa